Your Investment in Measurement

  |  February 18, 2011   |  Comments

Marketers should spend 20 percent of their marketing budgets on optimization and testing instead of fun Super Bowl ads. Here's why.

When asked, "How do I make my website better?" the answer is clear: "It depends. Better at what?"

When asked, "What should I be measuring on my website?" the answer is always, "It depends. What are you trying to accomplish?"

In both cases, having clear goals is the key to success.

But when asked, "How much should we spend on measurement?" I do not waffle. The answer is 20 percent of your marketing budget. And then I wait until they stop gaping at me like a grouper, eyes and mouth open wide.

How much you should spend on marketing is a question of corporate culture, which means politics and religion. Good luck with that. But when it comes time to measure the results of your efforts, I take a stand.

If you're spending $10,000 per year on advertising and marketing, etc., then you should install free analytics tools and pay a consultant $1,000 twice a year for a few of hours of their time. They can tell you what's not working and which problems are keeping you from the success you deserve.

If you're spending $10 million per year on advertising and marketing, etc., then it may seem that slashing your budget by 20 percent and spending $2 million on measurement is an outrageous suggestion in the pain of cutting and the profligacy of expenditure. Why so extravagant?

"Half the money I spend on advertising is wasted; the trouble is I don't know which half," is attributed to the world's first department store owner John Wanamaker. If $5 million is being wasted, wouldn't it be worth knowing which $5 million it was?

I divide marketing measurement into two areas - optimization and testing - which stand the test of logic in the face of the horrors of stealing marketing money from more fun disbursements like Super Bowl ads.

Optimization is the act of continuous improvement. Optimization means having the tools, people, and processes in place to systematically monitor and enhance the results from every marketing campaign and customer touchpoint. Optimization means that you are going to get another 1 percent or 2 percent improvement in results every time you turn around. That adds up to a significant return on investment given that improvement is compounded.

Testing is a different kettle of fish. It is very closely related to optimization but with an important twist. While optimization is a matter of refinement, testing is an act of creativity that is even more fun than the Super Bowl.

A/B split tests and multivariate testing are necessities. They harness the power of computing to serve the marketer. They determine which combination of persuasive copy and art is most effective. They also allow for breakthroughs.

If you have allocated 10 percent of your marketing budget for testing, then you have created an environment of creativity that allows for harebrained experimentation. When you spend on experimentation, you are opening up to a realm of possibility. You are willing to try social media without rigid ROI expectations. You are prepared to try new partnerships just-to-see-what-might-happen.

An expenditure of 10 percent of your marketing budget on wild experimentation is not guaranteed to produce breakthrough results, open up new markets, launch new product lines, or reshape your entire brand as leading edge thinkers. But not spending on experimentation is guaranteed to not produce any of the above.

Think of it as marketing R&D - just don't forget to keep clear goals in mind.

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ABOUT THE AUTHOR

Jim Sterne

Jim Sterne is an international consultant focused on measuring the value of the online marketing for creating and strengthening customer relationships. Sterne has written eight books on using the Internet for marketing, produces the eMetrics Marketing Optimization Summit and is co-founder and current chairman of the Digital Analytics Association.

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